November 2010 Archives

(Original Post)

Tuesday, November 30th, 2010 at 4:40 p.m.

Alan Grayson on Wednesday, November 17th, 2010 in a speech on the House floor.

Alan Grayson going down swinging on Bush tax cut extension

Alan Grayson says the wealthiest Americans can buy wine from 1787 with the money they'll save if the Bush tax cuts are extended for them.

File this under the category of things that won't surprise you -- Alan Grayson isn't leaving office quietly.

The Orlando Democrat who lost his bid for re-election took to the U.S. House floor on Nov. 17, 2010, to rail against Republicans who want to extend the Bush 2001 and 2003 tax cuts for all Americans, including the wealthiest 1 percent of income earners.

With a series of cardboard posters, Grayson mocked Republicans for more than five minutes. "The Republican plan for tax cuts is to give each millionaire -- each person who makes $1.4 million a year on average, the top 1 percent of income in this country, the high and mighty -- $83,347 a year in tax cuts," Grayson said, turning to his posters.

Grayson said the wealthiest could use the money to buy a 2011 Mercedes-Benz E-Class sedan, once a year, every year for the next decade. Or they could buy a Hermes "Birkin" handbag every year or a bottle of 1787 Chateau d'Yquem wine.

"Here's something else they can do," Grayson said, showing the next poster. "They can buy 20,000 jars of their favorite mustard, Grey Poupon. Twenty thousand jars. That's certainly enough for them, their family, their friends, even a few poor people.

"Thank you Republican Party."

Grayson came back on Nov. 18, 2010, and continued poking the GOP -- saying the money could be used to buy three tickets to the most expensive suite at the Super Bowl, to climb Mt. Everest, or for a 110-day couple's cruise around the world. ("Not just one year, but every single year," he said.)

Grayson's point is that the money could be better used creating jobs than going to America's top earners. That the country could essentially take the money and hire 3 million people at $30,000 a year, creating jobs instead of lining the pockets of the rich. There's some false logic in his thinking, at least from the Republican point of view. Republicans say it's those top earners who create jobs and taking money out of their pockets will cost jobs. Grayson also certainly is guilty of hyperbole in suggesting that the rich will use the money saved from the tax cuts only on outrageous luxury items.

But that's all a philosophical debate we'll let you have at your dinner tables.

For PolitiFact Florida, we wanted to zero in on his baseline number, that the Republican plan for extending the 2001, 2003 and other Bush-era tax cuts would result in the top 1 percent of earners paying $83,347 a year less in taxes.

Grayson said his figure comes from an analysis provided by a liberal public policy group called Citizens for Tax Justice.

Citizens for Tax Justice Legislative Director Steve Wamhoff backs up Grayson's numbers, saying that if all of the tax cuts scheduled to expire at the end of this year remain in place, the top 1 percent of earners will save $83,347 on average. But there's more to the story, Wamhoff said.

First, extending all of the Bush-era tax cuts for everyone isn't exactly "the Republican plan."

Senate Minority Leader Mitch McConnell introduced a bill on Sept. 13 that would extend most of the Bush-era tax cuts, and would restore the estate tax, at some level, for some people. The effect of the McConnell bill is that the top 1 percent of income earners would see a total cut of $74,621, according to Citizens for Tax Justice.

Another bill filed on Nov. 17 by Republicans Rep. Mike Pence of Indiana and Sen. Jim DeMint of South Carolina would permanently repeal the estate tax for everyone, meaning the top 1 percent would see the cut suggested by Grayson -- $83,347, using Citizens for Tax Justice numbers.

And there's a second caveat. Democrats, including President Barack Obama, want to extend some of the tax cuts for the wealthiest 1 percent of Americans too. Just not to the extent that Republicans do.

While President Obama's preferred alternative is to extend the 2001 and 2003 Bush tax cuts for only those individuals making $200,000 or less and couples making $250,000 or less, he does support extending other tax cuts that would benefit wealthier Americans, including restoring a reduced estate tax. Under Obama's plan, the top 1 percent of earners would pay $28,728 a year less in taxes than they would if all of the tax cuts were allowed to expire at the end of the year, according to Citizens for Tax Justice.

How does this all add up?

If all of the tax cuts are allowed to expire, the wealthiest 1 percent will pay around $83,347 a year more in federal taxes on average.

If President Obama's plan is approved, the wealthiest 1 percent will pay about $54,619 a year more in federal taxes than they do now.

If McConnell's bill passes, they'll pay $8,726 a year more.

And if the DeMint/Pence plan passes, they'll pay the same amount.

Now we know you're probably wondering if Citizens for Tax Justice's numbers are credible, especially since they define themselves as being liberal. We did, too. So we also checked with the Tax Policy Center, an independent, nonpartisan think tank. They didn't measure things exactly like Citizens for Tax Justice, but they did corroborate one critical fact. They found that if President Obama's tax plan becomes law, the wealthiest 1 percent of Americans would pay $53,674 a year more, on average, in federal taxes (CTJ's number was $54,619).

We also found research from the Congressional Joint Committee on Taxation -- a nonpartisan committee with a professional staff of economists, attorneys and accountants -- that helps illustrate the same point, though by using slightly different criteria. The Joint Committee on Taxation found that, for those who have income of $1 million or more, extending all of the Bush tax cuts would mean $32.7 billion that the government would not collect in 2011. That amount would apply to 315,000 tax filers. Divide the foregone tax revenues by the number of filers, and you get $103,809 per tax filer. That's a bigger number than Citizens for Tax Justice, but also applies to a different pool of people.

And it substantiates Grayson's broader point, which is that extending the tax cuts for the wealthiest Americans means they will save a lot of money in federal taxes.

In a pair of dramatic House floor speeches, he said that the Republican plan to extend the Bush-era tax cuts would result in the wealthiest 1 percent of Americans saving $83,347 a year. He's quoting a study from the group Citizens for Tax Justice accurately, and the math is largely backed up by the more independent Tax Policy Center. But he neglects to mention that another GOP-embraced tax plan would shrink the tax savings of the wealthiest Americans slightly and that a significant chunk of the tax cuts he's talking about are also supported by Democrats and President Obama. So we rate this claim Mostly True.



Huffington Post: Chamber Of Commerce's Lobbying To Extend Bush Tax Cuts Would Reap Millions For Wealthy Backers

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(Original post)

11-29-10

Amanda Terkel

WASHINGTON -- The labor-backed advocacy group U.S. Chamber Watch is taking aim at the U.S. Chamber of Commerce in a new report, arguing that the industry group's aggressive lobbying effort to extend the Bush tax cuts is less about creating jobs for businesses and more about lining the pockets of wealthy corporate CEOs who would personally gain from hundreds of thousands to millions of dollars.

"Let's be clear: The US Chamber isn't fighting to extend the Bush tax cuts because it helps small businesses (it doesn't) or the vast majority of its members (nope); it merely helps Chamber CEOs like Rupert Murdoch, JPMorgan Chase's Jamie Dimon and Wellpoint's Angela Braly who sleep easier knowing they'll be able to afford that extra private jet," said Chamber Watch spokesperson Christy Setzer. "The US Chamber has thrown its Main Street members under the bus to protect the wallets of its wealthiest CEOs."

From the key findings compiled by Chamber Watch and the liberal public policy organization Citizens for Tax Justice (CTJ):

-- Rupert Murdoch, the CEO of News Corporation, whose donation of $1 million to the U.S. Chamber of Commerce led to well-publicized shareholder outrage, would pocket more than $1.3 million.

-- Don Blankenship, a former U.S. Chamber Board member and the CEO of Massey Energy, whose company owned the mine in which twenty-nine miners died in April 2010's mining disaster, the worst in forty years, would take home more than $700,000.

-- David Cote, the CEO of Honeywell and a member of the National Fiscal Commission, who keynoted an address to the National Chamber Foundation expressing concern about the national debt over the next ten years, would get a tax cut of over $1.2 million.

-- CEOs of big banks on Wall Street who helped collapse the economy and then used the U.S. Chamber to fight stronger financial regulations stand to reap between $700,000 and $1.6 million each.

-- The CEOs of the health insurance industry, whose industry saw an overall increase in profits this year even while they slashed benefits and instituted breathtaking premium increases, are looking to personally benefit from another hit on the middle class by taking in between $335,000 and $875,000.

-- U.S. Chamber president and CEO, Thomas Donohue, who has shifted the Chamber's mission from serving mainstream business to serving the interests of the CEOs whose corporations write the biggest checks, will personally gain over $200,000.

In its lobbying efforts, the Chamber has said that raising taxes on any Americans during an economic downturn hurts recovery. "The Chamber believes that no one should have their taxes raised during a time of economic weakness -- not individuals, not small businesses, not large businesses," wrote Bruce Josten, the Chamber's executive vice president for Government Affairs, in a Nov. 15 letter to members of Congress. "Job creators are especially sensitive to tax rates and any tax increase right now would only hinder the already too weak recovery."

In an email to The Huffington Post, a Chamber spokesman argued that the burden of increased taxes on high-income earners will fall on the entire economy. "When high-income taxpayers have to pay higher taxes, many mitigate their new tax burden by reducing investment income, which leads to lower job creation," the staffer wrote. "The chain reaction results in fewer opportunities and smaller salaries for lower-income workers."

Chamber Watch, however, points to a January report by the nonpartisan Congressional Budget Office, which identified tax cuts as the least effective of the measures currently on the table to create jobs.

CTJ Director Robert McIntyre noted that extending the Bush tax cuts for the wealthiest Americans wouldn't affect companies' bottom lines anyway.

"In the case here, where we're looking at executives of big companies, they're not hiring people with their own money, they're hiring people with the companies' money," he told The Huffington Post. "Are they saying that if they don't get paid -- if their after-tax income goes down a little bit -- that their company won't hire people?"

A few CEOs have been coming out and publicly arguing against extending the Bush tax cuts for the wealthiest Americans, with billionaire Warren Buffett recently saying that people like him should be paying much more in taxes.

 



U.S. News & World Report: 10 Things You Didn't Know About the Bush Tax Cuts

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(Original post)

By U.S. News Staff

November 22, 2010

1. In 2000, the United States boasted a more than $236 billion budget surplus (the national debt was just under $6 trillion).
Click here to find out more!

2. The Economic Growth and Tax Relief Reconciliation Act of 2001 decreased each tax bracket and created a 10 percent bottom rung. Top earners' tax rate dropped by 4.6 percentage points.

3. The act also increased the child tax credit from $500 to $1,000 and gave married couples filing jointly a standard deduction twice that of an individual.

4. To conform with a Senate rule that required budget-reconciliation legislation to not decrease tax revenue for more than 10 years, the cuts were set to expire on Dec. 31, 2010.

5. The savings were scheduled to phase in gradually, but in 2003 President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act, which accelerated the timeline of the earlier cuts and benefits.

6. Citizens for Tax Justice estimated the cuts saved taxpayers $2.5 trillion between 2001 and 2010.

7. Now three years into a severe economic downturn, the Congressional Budget Office estimates the budget deficit was $1.3 trillion in fiscal year 2010 and the national debt neared $14 trillion.

8. If Congress does nothing, tax rates will rise and credits will disappear.

9. The Treasury Department estimates that if all the cuts are kept, taxpayers would save (and the government would lose) $3.7 trillion over the next 10 years.

10. Democrats and Republicans mostly agree on extending the tax cuts for Americans making less than $200,000 ($250,000 for couples filing jointly), but President Obama wants to let the cuts expire for the top wage earners.

    * Read more about the deficit and national debt.
    * See who is donating to your member of Congress.
    * See which industries give the most to Congress.



Time Magazine: Earmarks: Will Congress Tackle Tax Expenditures?

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(Original post)

Monday, Nov. 22, 2010

By Michael Scherer / Washington

Erskine Bowles, a co-chair of President Obama's deficit commission, fully supports recent congressional efforts to stop spending earmarks, also known as pork. But he is also on a mission to raise America's awareness of the other white meat that is much more responsible for bloating the federal budget.

"You all write and give all these guys up there all this credit for getting rid of $16 billion a year in earmarks," Bowles said Friday, referring to Congress, during a bacon-and-egg breakfast with reporters that had been organized by the Christian Science Monitor. "Those are earmarks that are in the spending bills. There are $1.1 trillion in annual earmarks in the tax bills. And you give them a free ride. It's crazy." (See TIME's special report on the rising stars of U.S. politics.)

Earmarks in the tax code are commonly called tax expenditures under federal law, and they include all special exclusions, deductions, exemptions, credits, preferential rates and deferrals that allow people to reduce their taxes. These include all kinds of widely popular programs from which millions of Americans benefit. If you pay a mortgage, you benefit from the mortgage-interest deduction. If you have a child, you benefit from the child tax credit. They also refer to a group of narrowly tailored programs that benefit certain industries or companies — breaks for owners of NASCAR tracks, makers of archery equipment and oil companies, just to name a few.

"There is a whole lot of spending Congress is doing that is not recognized as spending because it is done through the tax code," explains Steven Wamhoff, the legislative director for Citizens for Tax Justice, a liberal group that advocates more responsible budgeting. "There are a lot of situations where members of Congress think if you call something a tax cut that makes it a lot more appealing than calling it spending."

In each case, the tax break is protected by interests as influential as any locality in need of a new bridge to nowhere or a federally funded agricultural history museum. But the politics around tax expenditures historically can be sharply different from the politics that surround earmarked spending.

In recent months, incoming Speaker of the House John Boehner has claimed that Congress should change the way it looks at specialized tax breaks. "We need to take a long and hard look at the undergrowth of deductions, credits and special carve-outs that our tax code has become," Boehner said in a pre-election speech about his priorities. "And yes, we need to acknowledge that what Washington sometimes calls tax cuts are really just poorly disguised spending programs that expand the role of government in the lives of individuals and employers."

Other conservatives, however, are dead set against any reduction in special tax exemptions if the savings from those reductions go to reducing the deficit. Grover Norquist, author of the Taxpayer Protection Pledge, which has been signed by 235 Representatives and 41 Senators from the incoming Congress, has long maintained that unlike with spending earmarks, any money saved by eliminating tax expenditures cannot be used to spend down the deficit. "Then what you would be doing is raising net taxes," explains Ryan Ellis, the tax-policy director for Norquist's organization, Americans for Tax Reform.

A draft proposal by the co-chairs of the Obama deficit commission has targeted tax expenditures for massive cuts by going after everything from the mortgage-interest deduction to depreciation benefits for business. The cuts would be offset, in part, by lowering marginal rates for personal and corporate income tax.

Such lines in the sand are likely to be tested next spring, when Republicans have promised a showdown (and hinted at the possibility of a shutdown) over the need to raise the debt ceiling. Deficit hawks hope that the debate over the ceiling will force some hard choices, including the elimination of many tax expenditures. "Let me tell you, this is going to be beautiful politics, the brutal kind," said former Wyoming Senator Alan Simpson, the other co-chair of the Obama debt commission. "The debt limit, when it comes in April or May, will prove who's a hero and who's a jerk and who's a charlatan."



Washington Informer: Obama Should Reject Bush Tax Breaks for the Wealthy

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(Original post)

Thursday, 18 November 2010

By George E. Curry   

President Obama should set the tone for his next two years by insisting that the Bush tax cuts remain in place temporarily for 98 percent of Americans, but not the top 2 percent who already enjoy a disproportionate share of the benefits.  All signs are pointing to the President caving in to obstinate Republicans in Congress who want to extend the cuts, set to expire at the end of the year, for everyone including the top 2 percent.

President Obama campaigned on a pledge to end the Bush tax cuts for the top 2 percent of taxpayers, defined as an individual earning at least $200,000 a year and couples earning a minimum of $250,000.  But it appears he is on the brink of breaking that promise.  If neither President Obama nor Republicans are willing to take such a modest step of extending the tax breaks only to those who need them the most, they are not serious about wanting to reduce the deficit.

President Obama repeatedly reminds us that he inherited a mess from George W. Bush.  And he is correct.  “If not for the tax cuts enacted during the presidency of George W. Bush that Congress did not pay for, the cost of the wars in Iraq and Afghanistan that were initiated during that period, and the effects of the worst economic slump since the Great Depression (including the cost of steps necessary to combat it), we would not be facing these huge deficits in the near term,” observed the Center on Budget and Policy Priorities, a nonpartisan think tank in Washington, D.C.

In case no one has noticed, Bush has not lived in the White House for the past two years.  And the person who does live there moved in after volunteering to clean up after the Bush circus left town.  This should begin with President Obama stating that unlike Republicans, he will not serve as a mouthpiece for big business and people with big bucks.

“In 2010, when all of the Bush tax cuts are finally phased in, a staggering 52.5 percent of the benefits will go to the richest 5 percent of taxpayers,” noted Citizens for Tax Justice.  According to the Treasury Department, extending the Bush tax cuts to the top 2 percent of taxpayers would cost $678 billion over the next decade.

The federal deficit for fiscal 2009 was $1.4 trillion.  It represents nearly 10 percent of the Gross Domestic Product (GDP), the largest proportion of the economy since World War II.  If nothing is done to curb the deficit, it is expected to remain near $1 trillion a year for the next 10 years. Mounting deficits requires borrowing more money from abroad and continuing to pay interests on those and other loans, leaving less money available to invest in future programs.  Some call it mortgaging the future.

The Republican solution to attacking the deficit, if it can be called that, is to cut non-security discretionary programs.  A plan outlined by incoming House Speaker John Boehner would reduce such spending by $101 billion or 21 percent.  Exempt from the cuts would be spending for defense, homeland security, military, and veteran’s appropriations.

There is no way to come close to making a serious dent in the deficit without touching many programs considered untouchable.  According to the Congressional Budget Office, Social Security is projected to account for 21 percent of the federal budget, Defense 16 percent, Medicare 14 percent, Medicaid 10 percent, net interest 14 percent and other spending 22 percent.

Slashing budgets could have a devastating impact on many programs, including education.  A 21 percent decrease in K-12 education funding, for example, would mean a loss of more than $8.7 billion.  The Center on Budget and Policy Priorities said such a cut could mean reducing housing programs by $6.9 billion, children and family services by nearly $2.2 billion and the nutritional program for at-risk pregnant women, infants and children (WIC) by $1.6 billion.

Federal aid to cities and states would compound deep cuts already made at that level.  According to the Center on Budget and Policy Priorities, 46 states have balanced their budgets during this fiscal crisis by cutting funds to education, health and other programs for the needy.

President Obama should just say no to the Party of No.

George E. Curry is the former editor-in-chief of Emerge magazine and the NNPA News Service.  He can reached at www.georgecurry.com or follow him on Twitter at:  www.twitter.com/currygeorge



Shanker Blog: Evasive Maneuvers

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Evasive Maneuvers

Posted November 10, 2010

Original Post

In a previous post, I showed how the majority of funding for education and other public services comes from state and local tax revenue, and that low-income families pay a disproportionate share of these taxes (as a percentage of income). 

One of the reasons why this is the case is that many corporations – especially the largest and most profitable – have managed to avoid paying most of the state taxes that they owe (45 states have some form of business tax).  State corporate income taxes (CIT) are levied on business profits – so, for the most part, it’s only the highest-income individuals who are liable (through the businesses they own) for corporate taxes (the top 10 percent wealthiest individuals own about 90 percent of all corporate stock).

A 2005 joint report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy took a close look at state CIT payments by 252 Fortune 500 companies between 2001 and 2003. Their findings were astounding. These corporations were able to shelter roughly two-thirds of their actual profits from state taxation, while 71 of them paid not a penny in state taxes during at least one year between 2001 and 2003.  During the years they paid no taxes, these 71 companies reported $86 billion in profits to their shareholders.

In other words, 71 Fortune 500 companies paid zero state corporate income taxes, while as a whole, the 252 paid tax on only about one-third of their actual profits. For example, in 2001, IBM made roughly $5.6 billion in profits, but paid no corporate income tax to any state. 

As a consequence of this evasion, the proportion of state revenue coming from corporate profits has decreased steadily over the past 30 years, leaving the rest of us to shoulder a greater share of the burden for education and other vital services.

The simple graph below presents the percentage of total state revenue coming from CIT between 1977 and 2008. The data come from the U.S. Census Bureau.

The proportion of states’ general revenue from CIT was basically cut in half during this period (there is a similar decline when tax revenues are measured as a share of GDP). The decrease in the graph is about 2.5 percentage points, and that is equivalent to roughly $40 billion in state revenue today, representing almost one-third of the projected budget shortfalls for FY2011 (note, however, that this is only a very rough illustrative estimate, especially since corporate profits have suffered due to the recession).

So how did state corporate income tax collections erode at the same time that corporate profits were soaring? The disturbing answer is that many companies avoided taxation without breaking a single law. 

There are many tax avoidance strategies, and the details are complex. In some cases, states invite it by aggressively offering tax breaks in exchange for the “economic development” that results from corporations moving in (and public disclosure of these subsidies is often lacking).

In most cases, though, corporations use clever accounting tricks, like declaring all their profits in fake “shadow companies” that are set up in states that have no corporate taxes (e.g., Delaware), or, similarly, in other nations that serve as corporate tax havens (thankfully, some states have started closing these loopholes, most notably through the use of combined reporting, which requires all profits made in a state to be declared in that state).

Now, some people argue that states are justified in permitting these loopholes – or in providing direct tax incentives for businesses to set up shop in their states – since taxpayers receive other “economic development” benefits, such as higher employment.  You might also hear the argument that some CIT is indirectly paid by everyone, even low-income families, since businesses just pass it down to consumers through higher prices.

But it is difficult to justify the fact that this corporate tax avoidance, regardless of its “benefits,” has the end result of saddling everyone else – especially the lowest-income families – with a larger share of the burden of paying for vital public services, such as education (which is almost entirely funded by states and localities). Some corporate income taxes may be indirectly paid by everyone, but so are the consequences of its erosion (rather directly at that).

It also seems to me that no argument can account for the fact that dozens of the largest corporations in the world—some larger than the GDPs of entire nations—have managed to avoid paying any state income taxes at all. And those that do pay taxes often pay only a fraction of what they owe.

So, again: the next time you hear about layoffs of teachers or other public servants, or about massive program cuts, or how education or other public spending is “unsustainable,” go take a quick look at the list of corporations that paid no taxes between 2001 and 2003. You will find some of the largest and most profitable institutions on Earth. Then tell me if there isn’t a better way to fund our public services?



Reuters: Republicans eye reviving tax cut debate in 2012

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Republicans eye reviving tax cut debate in 2012

Tue, Nov 9 2010

By Kim Dixon

Original Post

WASHINGTON (Reuters) - Republicans, emboldened by their big mid-term elections wins, are mulling backing a temporary extension of Bush-era tax cuts, which would tee up the issue to use against President Barack Obama in 2012 contests.

As lawmakers prepare to return to Washington next week for a post-election session, Republicans are considering backing a two-year extension of George W. Bush-era tax cuts, lawmakers and analysts say, which would postpone their bid to make permanent all of the rate cuts, including for wealthy that Obama and most other Democrats oppose.

Such a deal would ensure the debate will be revived in 2012 when Obama will be up for re-election and the parties struggling again for control of Congress.

"It's a debate they (Republicans) would like to have." said John Harrington, a former Republican staffer on the tax-writing House of Representatives Ways and Means Committee. "There is a view that Republicans did well in the recent tax debate."

Republicans have a stronger hand after winning control of the House and cutting into the Democrat's Senate majority in last week's midterm elections.

Democrats tried to permanently extend tax cuts for lower and middle income groups enacted under Bush, a Republican, before last week's elections. But they deadlocked when some of their members broke ranks and joined Republicans in demanding that cuts for the wealthy also be extended.

Most individual income tax rates are set to rise in January unless Congress acts, which lawmakers from both parties agree would be hazardous in the current weak economy.

The White House last week said it was open to talks with Republicans to extend all of the lower tax rates, but the White House said any extensions for the wealthy must be temporary.

Before the election, Obama opposed extending cuts for the rich at all, arguing that would create an unacceptable increase in the $1.3 trillion budget deficit.

Most Democrats want to separate the issue of tax cuts for individuals making less than $200,000 and families making less than $250,000 from cuts for those with higher incomes, thinking it will be tougher for Republicans to defend lower rates for the rich next time they expire.

Top Republicans have not signaled compromise.

"One of the ideas that we've seen floated is decoupling - that is we would extend the tax rate as they are for those making under two hundred thousand permanently ... and somehow do it less of a time for those higher earners," Eric Cantor, No. 2 in the House Republican leadership, said on Monday. "That's exactly what we don't need right now," he said.

"Republicans seem to be digging in on a temporary extension of all the tax rates," Capital Alpha analyst Jim Lucier said.

Republicans see benefit in waiting until they control the House in January and have more leverage, analysts said.

WHO WILL BLINK FIRST

House Speaker Nancy Pelosi has control during the post-election "lame-duck" session and could force a vote just on renewing lower rates for the middle class - daring Republicans to vote against them.

"She has been almost defiant in her reading of election results and her insistence that she protect accomplishments of Democrats," said Sean West, a fiscal policy analyst for the Eurasia Group advisors. "Pelosi doesn't cave on this stuff."

But West doubts such a bill would pass the Senate, where conservative Democrats have sided with Republicans.

Liberals fear Republican boldness in the who-will-blink-first game will mean all taxes go up in January.

"Sometimes when there is a game of chicken on taxes, Republicans have shown us they aren't afraid of real world consequences," like having everyone's taxes go up, even temporarily, said Steve Wamhoff, legislative director for the consumer group Citizens for Tax Justice.

While Obama has signaled some room for compromise, it is unclear what the mood of congressional Democrats, scores of whom lost their seats last week, will be when they return to Washington on November 15.

One compromise being considered by Democrats is another way to separate "the middle class" from the "rich." The idea would be a new category for rates for those earning above $500,000 or $1 million, for example.

"It's hard to tell what these disaffected members are going to feel like when they get back," said a senior House Democratic aide.

The issue will be a hot topic when they return next week, and a focus of a dinner Obama will hold with Republicans leaders on November 18.

(Additional reporting by Thomas Ferraro; Editing by Vicki Allen)



The Christian Science Monitor: Death tax showdown at the OK Corral

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Death tax showdown at the OK Corral

Original Post

Ranchers want to die before year end to avoid the estate tax, claims Rep. Lummis. Whether or not the story is true, the underpinnings are myths: the family ranch and a looming 'death tax.

By Howard Gleckman

November 3, 2010 at 8:05 am EDT

Who needs death panels? Representative Cynthia Lummis (R-WY) claims that ranchers and farmers in her state are planning on ending dialysis or other life-extending medical treatment before the end of the year so they can avoid paying the estate tax. This may cost the Treasury some revenue, but there is a silver lining for deficit hawks. After all, it will save Medicare a bundle.

Many Republicans opposed a provision in an early version of the health bill that would have let Medicare pay physicians to talk to their patients about end-of-life choices. But it seems Wyoming ranchers need more than medical advice. They really need to talk to a good lawyer. If they did, nearly all of these suddenly suicidal cow punchers would realize that pulling the plug is, from a tax planning point of view at least, completely nuts.

To understand why, remember the current state of play over the estate tax. Thanks to the 2001 tax law, estates of all people who die in 2010 are tax-free. But that 2001 law expires on Dec. 31. If Congress does not act, starting on Jan. 1 estates of $1 million or more will be subject to a tax of up to 55 percent.

Thus, we have a specter of a tough and independent Clint Eastwood-like cowboy who chooses to head prematurely for that great roundup in the sky, all to save his hard-earned herd from some Internal Revenue Service bureaucrat hovering over his hospital bed, awaiting that final breath. It brings a tear to the eye.

Except it is all a carefully crafted myth.

Start with the cowboy. Some Wyoming ranchers have been on their land for generations—property stolen fair and square from Native Americans in the 19th century. Others are grazing their herds on federal land while paying cut-rate fees for the privilege. And still others are LA doctors, lawyers, and actors who spend a few weekends a year on their ranchettes, where they enjoy both spectacular scenery and generous income tax subsidies for grazing a few head of someone else’s cattle.

The second myth is that their heirs will lose their ranches to the taxman. To start, there is no serious discussion in Congress of allowing the estate tax to return to 2000 levels. Even President Obama and the congressional Democratic leadership would at least return the law to where it was in 2009, exempting the first $3.5 million ($7 million for couples) from tax and setting a rate of no more than 45 percent. In addition, family farmers and small businesses get an extra $1 million exemption ($2 million for couples) for a total exemption of $9 million. And in the rare case where farm estates do owe tax, they can defer the debt for up to five years and extend payments for a decade after that.

So how many of these yeoman ranchers would lose their land if we returned to the 2009 law? Roughly none. The Tax Policy Center estimates that in the entire United States, about 110 small farm and small business estates would owe any estate tax in 2011. Citizens for Tax Justice estimated that under the 2004 rules (when the exemption was only $1.5 million) only 62 Wyoming estates of any kind owed tax. And not all of them, of course, had farm assets.

Finally, a rancher who chooses to die this year may end up costing his heirs money. Because 2010 is also a year when heirs lose the benefit of stepped-up basis, if they eventually sell the ranch they will end up paying capital gains tax based on its value when it was first acquired rather than on what it was worth at the time of death. While this provision applies to all assets, ranches, where the tax basis is usually quite low, are exactly the sort of property that could get hit.

Over-the-top hyperbole is all part of the political game, of course. But if Rep. Lummis is aware of constituents who are planning on killing themselves to avoid the estate tax, she has something of a responsibility to let them know the difference between reality and myth.



Wonk Room: Indiana's GOP Governor Pushes Regressive Property Tax Cap Amendment

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Indiana’s GOP Governor Pushes Regressive Property Tax Cap Amendment

Original Post

Gov. Mitch Daniels (R-IN)

On Election Day, voters in Indiana will cast their ballots for or against enshrining a property tax cap in their state constitution. The cap — which would hold property tax increases to one percent for residential homes, two percent for rental properties and farms, and three percent for businesses — is already being implemented by the legislature, but the amendment would make it much harder to alter the cap down the road.

As the Wall Street Journal reported today, the amendment is receiving the enthusiastic support of Indiana’s governor, Mitch Daniels (R):

Gov. Mitch Daniels, a Republican considered a potential presidential candidate in 2012, has been campaigning in favor of the amendment. Otherwise, he said in an interview, it will be too tempting for lawmakers to raise tax rates. “Human nature and the bureaucratic instinct for self-preservation very rarely reform, absent some pressure to do so,” Mr. Daniels said.

Daniels has been relatively reasonable when it comes to taxation recently, acknowledging in an interview with Newsweek that tax increases may have to be part of the nation’s budget solutions (which they do). But back in his home state, he is supporting a regressive tax cap that is going to do a lot for wealthy homeowners, but not much for anyone else.

The amendment is being sold as one that will benefit all Indiana residents. But as the Indiana Institute for Working Families pointed out, that’s not true:

Indiana homeowners benefit from a variety of generous property tax breaks that disqualify many Hoosiers from being eligible for the tax caps, including a $45,000 homestead deduction and 35% deduction on home values up to $645,000. Those fortunate Hoosiers with homes worth more than $645,000 also receive an additional 25% deduction on the remaining value of their home. These deductions dramatically reduce the property taxes paid by most Hoosiers, and do so in a way that makes the most expensive homes more likely to be eligible for the caps. For example, after factoring in the benefit of the homestead deductions and applying a fairly typical 2% tax rate, a home valued at $125,200 would receive no benefit from the caps, while a home worth $1 million would receive over $3,000 in benefits!

Plus, as Citizens for Tax Justice pointed out, “since some of the cost of these recent changes to the property tax was offset by a regressive sales tax increase, renters and lower-income homeowners can expect to pay more in taxes overall.”

In addition to bestowing an unwarranted tax break on the wealthy, the caps will force already cash-strapped municipalities to make further cuts. For instance, “mayors and city-council members across the state also have blamed the caps for forcing them to cut library hours and bus routes, and to lay off police officers and firefighters.” A report from Indiana’s nonpartisan Legislative Services Agency said “cities and towns lost almost 10% of their potential total tax levies this year because of the caps.”